Bond Market Update

Two-Day Skid Halted

• U.S. Treasuries finished Tuesday with modest gains across the curve, halting their two-day slide from one-month highs. The market appeared on track for an extension of its recent losses that increased yields on 5s and longer tenors by ten basis points, but the opening weakness did not last. Most tenors started the day in the red, but the 2-yr note outperformed from the start, leading a bounce that longer tenors eventually joined. The lower start briefly lifted the 30-yr yield back to its 200-day moving average (4.770%) where the market bounced. Meanwhile, yields on 5s and 10s started the day above their respective 50-day moving averages, but the intraday bounce pressured the 5-yr yield back below its 50-day moving average while the 10-yr yield settled right on the 50-day moving average of its own. The market did not receive any domestic data but tomorrow will feature a full slate of data, including the November ADP Employment Change (Briefing.com consensus 20,000; prior 42,000) at 8:15 ET and November ISM Services (Briefing.com consensus 52.4%; prior 52.4%) at 10:00 ET. Crude oil fell below $59/bbl while the U.S. Dollar Index spent the day near its flat line at 99.40, remaining below its 200-day moving average (99.60).
• Yield Check:
  • 2-yr: -2 bps to 3.52%
  • 3-yr: -2 bps to 3.53%
  • 5-yr: -1 bp to 3.66%
  • 10-yr: -1 bp to 4.09%
  • 30-yr: UNCH at 4.74%

• News:
  • Treasury Secretary Bessent said that he expects a CapEx boom and real wage growth in 2026. He also expects lower inflation next year.
  • U.S. officials confirmed that South Korea's tariff rate has been reduced to 15%.
  • China Securities Journal reported that local Chinese governments are buying stakes in listed companies.
  • British investors have some concerns that the budget plan that was announced last week will not be realized since it would require additional cuts leading into elections expected in 2029.
  • The Bank of England lowered the systematic capital buffer to 13% from 14% after the latest round of bank stress tests. The Countercyclical Capital Buffer was maintained at 2%.
  • European Central Bank policymaker Kocher said that slight inflationary or disinflationary deviations from target should not trigger policy changes, echoing recent comments from officials that policy is in a good place.
  • Japan's November Monetary Base was down 8.5% yr/yr, as expected (last -7.8%) and November Household Confidence rose to 37.5 from 35.8 (expected 36.2).
  • South Korea's November CPI was down 0.2% m/m (expected -0.3%; last 0.3%) but up 2.4% yr/yr (last 2.4%).
  • Australia's October Building Approvals fell 6.4% m/m (expected -4.3%; last 11.1%), dropping 1.8% yr/yr (expected 12.4%; last 14.9%). Q3 Current Account deficit reached AUD16.6 bln (expected deficit of AUD13.2 bln; last deficit of AUD16.2 bln). Q3 Net Exports Contribution decreased 0.1% qtr/qtr (last 0.1%). October Private House Approvals were down 2.1% (last 3.2%).
  • New Zealand's Q3 Terms of Trade Index fell 2.1% qtr/qtr (expected 0.3%; last 4.2%).
  • Eurozone's flash November CPI was down 0.3% m/m (last 0.2%) but up 2.2% yr/yr (expected 2.1%; last 2.1%). November Core CPI was down 0.5% m/m (last 0.3%), rising 2.4% yr/yr, as expected (last 2.4%). October Unemployment Rate remained at 6.4% (expected 6.3%).
  • U.K.'s November Nationwide HPI was up 0.3% m/m (expected 0.0%; last 0.2%), rising 1.8% yr/yr (expected 1.4%; last 2.4%).
  • France's October government budget hit a deficit of EUR136.2 bln (last deficit of EUR155.4 bln).
  • Spain's November Unemployment decreased by 18,800 (expected -12,400; last 22,100).
  • Italy's October Unemployment Rate fell to 6.0% from 6.2% (expected 6.1%). October PPI was down 0.2% m/m (last 0.2%), rising 0.1% yr/yr (last 1.1%).
• Commodities:
  • WTI crude: -1.2% to $58.67/bbl
  • Gold: -1.1% to $4220.10/ozt 
  • Copper: -1.1% to $5.24/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1623
  • GBP/USD: UNCH at 1.3211
  • USD/CNH: -0.1% to 7.0666
  • USD/JPY: +0.3% to 155.85
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 0.2%)
  • 8:15 ET: November ADP Employment Change (Briefing.com consensus 20,000; prior 42,000)
  • 8:30 ET: September Import Prices (prior 0.3%), Import Prices ex-oil (prior 0.4%), Export Prices (prior 0.3%), and Export Prices ex-agriculture (prior 0.3%)
  • 9:15 ET: September Industrial Production (Briefing.com consensus 0.1%; prior 0.1%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.4%)
  • 9:45 ET: Final November S&P Global U.S. Services PMI (prior 54.8)
  • 10:00 ET: November ISM Services (Briefing.com consensus 52.4%; prior 52.4%)
  • 10:30 ET: Weekly crude oil inventories (prior +2.77 mln)